KeyCorp (KEY) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, including record AUM and improved credit quality. Strategic focus on growth areas like middle market and payments, investment banking, and wealth, alongside AI investments, indicates a positive outlook. While there are conservative guidance elements, the overall sentiment is optimistic, with expectations of revenue and earnings growth, and a stable credit environment. The Q&A section supports this with positive analyst sentiment, despite some uncertainties in M&A visibility. This suggests a likely positive stock price movement in the near term.
Key Financial Performance
Earnings per Share (EPS) Fourth quarter earnings were $0.43 per share, representing a year-over-year increase. Adjusted EPS was $0.41. The increase was attributed to strong revenue growth and controlled expenses.
Revenue Fourth quarter revenue exceeded $2 billion, growing 12% year-over-year on an adjusted basis. Full-year revenue reached a record, increasing 16% compared to the prior year. Growth was driven by both net interest income and fee revenue.
Net Interest Income (NII) Tax equivalent NII increased by 15% year-over-year in the fourth quarter and 23% for the full year. Growth was attributed to stronger commercial loan growth and better deposit balances and betas.
Fee Income Fee income grew 7.5% year-over-year, with high single-digit to low double-digit growth across priority fee-based businesses such as investment banking, wealth, and commercial payments.
Expenses Expenses grew 2% year-over-year in the fourth quarter and 4.6% for the full year. The increase was due to investments in technology, hiring frontline producers, and higher incentive compensation.
Operating Leverage Achieved approximately 1,200 basis points of operating leverage and 280 basis points of fee-based operating leverage for the full year, driven by revenue growth outpacing expense growth.
Loan Growth C&I loans grew 9% year-over-year, while lower-yielding consumer loans were recycled into commercial loans. This enabled proactive management of funding costs.
Deposit Growth Client deposits increased by 2% year-over-year, with proactive actions taken to manage deposit costs and remix loans.
Assets Under Management (AUM) AUM reached a record $70 billion, with strong net flows and higher market values contributing to the growth.
Net Charge-Offs Full-year net charge-offs were 41 basis points, with a fourth-quarter ratio of 39 basis points. Improvements were seen in nonperforming assets, criticized loans, and delinquencies.
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Operating Highlights
Technology Investments: Invested an additional $100 million in technology focused on customer-facing capabilities to enhance client banking experience.
Commercial Payments Expansion: Fee equivalent revenue grew 11% in 2025 due to investments in bankers, new geographies, and scaling-embedded banking capabilities.
Wealth Management Growth: Assets under management reached a record $70 billion, with $4 billion added since 2023. The mass affluent segment added 54,000 new households and $7 billion in total client assets.
Revenue Growth: Fourth quarter revenue exceeded $2 billion, growing 12% year-over-year. Full-year revenue increased 16%, with net interest income and fee revenue surpassing projections.
Loan Growth: C&I loans grew 9%, with a focus on recycling lower-yielding consumer loans into commercial loans to manage funding costs.
Deposit Dynamics: Client deposits increased by 2%, with disciplined pricing strategies.
Capital Return: Repurchased $200 million of common stock in Q4 2025, doubling the original commitment. Plans to repurchase at least $1.2 billion in 2026.
Board Changes: Announced new board nominations and leadership transitions to enhance governance and align with company priorities.
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Risk or Challenges
Loan Loss Provisions: The company reported a loan loss provision of $108 million, which includes net charge-offs of $104 million. This indicates potential risks in credit quality and loan performance.
Net Charge-Offs: Net charge-offs were reported at 39 basis points of average loans, indicating some level of credit risk in the loan portfolio.
Nonperforming Assets (NPAs): Although NPAs declined by 6% sequentially, they still represent a risk to asset quality and financial stability.
Criticized Loans: Criticized loans declined by $500 million or 8% sequentially, but their existence still poses a risk to the company's credit portfolio.
Commercial Real Estate (CRE) Loans: The company experienced some net paydown activity in CRE loans, which could indicate challenges in this sector.
Deposit Costs: Total deposit costs declined by 16 basis points to 1.81%, but managing deposit costs remains a challenge in a competitive environment.
Brokered CDs: The company allowed the maturity of $2.4 billion of higher-cost brokered CDs, which could impact funding strategies.
Expense Growth: Expenses grew 7% sequentially and 2% year-over-year, driven by investments in technology, talent, and higher incentive compensation, which could pressure margins.
Economic Environment: The company mentioned navigating a dynamic environment, which could imply risks related to economic uncertainties and market conditions.
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Guidance & Outlook
Revenue Growth: KeyCorp expects revenue to grow at a high single-digit rate in 2026, driven by an 8%-10% increase in net interest income and 3%-4% growth in noninterest income. Adjusted noninterest income is expected to grow 5%-6%.
Operating Leverage: The company anticipates substantial positive operating leverage of approximately 300 to 400 basis points in 2026, with expenses growing at half the rate of revenue.
Loan Growth: Average loans are expected to grow 1%-2% in 2026, with commercial loans growing at about 5% as the company continues to shift from consumer loans to higher-yielding commercial loans.
Net Charge-Off Ratio: The full-year net charge-off ratio is projected to remain stable at 40-45 basis points.
Capital Return: KeyCorp plans to repurchase at least $300 million worth of shares in the first quarter of 2026 and at least $1.2 billion for the full year.
Investment Banking and M&A Activity: Investment banking fees are expected to grow about 5% in 2026, with middle market M&A activity anticipated to improve after being muted for the past three years.
Wealth Management: Wealth fees are projected to grow in the high single digits, with assets under management already reaching a record $70 billion.
Commercial Payments: Commercial payment fees are expected to grow in the low double digits in 2026, supported by investments in bankers, new geographies, and embedded banking capabilities.
Net Interest Margin (NIM): The company expects continued tailwinds from fixed-rate asset repricing, with $17 billion of low-yielding swaps, securities, and consumer mortgages maturing or prepaying in 2026.
Market Conditions: The market environment is favorable for new issuance, and financial sponsors are expected to be more active in middle market transactions in 2026.
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Shareholder Return Plan
Dividends: The company plans to maintain its dividend payouts as part of its capital return strategy. However, specific details about changes or increases in dividend payouts were not explicitly mentioned in the transcript.
Share Repurchase: The company repurchased $200 million of common stock in the fourth quarter of 2025, which was double the original commitment made in October. The average repurchase price was $18 per share. For 2026, the company plans to repurchase at least $300 million of stock in the first quarter and anticipates similar amounts in subsequent quarters, targeting a total of at least $1.2 billion for the full year.
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Key Q&A
Q:What are the strategic priorities for KeyCorp as they approach 2026?
A:Christopher Gorman emphasized growing the business organically, focusing on three key areas: middle market and payments, investment banking, and wealth (specifically mass affluent). He also highlighted investments in AI and technology, with tech and ops spending increasing from $800 million to $1 billion. The company is also focused on achieving a 15% ROTCE, with a path to 16%-19%, and positioning the business for the next leg of growth.
Q:Why does KeyCorp's investment banking fee guide seem conservative?
A:Clark Khayat explained that while they achieved a 9% banker hire target (10% was the goal), investment banking hires were closer to 5% due to competitive market conditions. They saw a pop in middle market M&A in Q4 but lack visibility for sustained trends throughout the year. If trends continue, there is upside to the guide.
Q:What are KeyCorp's expectations for growth as new bankers start producing?
A:Christopher Gorman stated that the burn-in period for new hires is 12-18 months. He noted that backlogs are at historically high levels, and the company has more clients and bankers than ever before. Clark Khayat added that consumer bank hires are expected to drive 8% growth, wealth fees are expected to grow high single digits, and middle market and payments are expected to grow about 8%.
Q:What is causing the lower run rate for average earning assets, and when can growth be expected?
A:Clark Khayat noted that consumer runoff is a factor, but commercial loan growth is expected to be strong at 5%. He expects average earning assets to bottom and begin growing again, with deposit balances remaining stable and brokered deposits being replaced by client deposits. NII is expected to grow throughout the year, exiting at $1.3 billion or more.
Q:What is KeyCorp's stance on bank and nonbank acquisitions?
A:Christopher Gorman stated that KeyCorp is not focused on bank acquisitions despite recent Board changes. However, they are interested in complementary fee-based and capability-enhancing acquisitions, including group hires, individual hires, or boutiques in areas like capital markets and investment banking.
Q:Why has middle market M&A been muted, and why is it expected to improve?
A:Christopher Gorman attributed the muted activity to uncertainty around interest rates and macroeconomic conditions. He noted that the 10-year rate is now range-bound, facilitating transactions. Backlogs are at historically high levels, and financial sponsors are expected to become more active. However, there is still some uncertainty in the deal business.
Q:What are KeyCorp's commercial customers feeling about the current environment?
A:Christopher Gorman noted that customers have adjusted to uncertainty and are optimistic due to clarity on tariffs, tax breaks, and the absence of a predicted recession. Middle market companies are generating significant cash and are optimistic about the future.
Q:What is the outlook for KeyCorp's commercial real estate (CRE) business?
A:Christopher Gorman stated that CRE loan growth is expected to be flat on an average basis in 2026 but up 3% from Q4 2025 to Q4 2026. The CRE business is poised for growth as transactional activity increases. Clark Khayat added that CRE revenue is expected to grow 6%-8% in 2026, with some components like servicing fees expected to decline.
Q:What is KeyCorp's approach to managing expenses and investments in AI?
A:Christopher Gorman mentioned that KeyCorp has increased tech and ops spending by $100 million annually for the past three years. While AI is expected to bring efficiencies, the focus is on transformational activities rather than immediate cost savings. Continuous improvement has generated $100 million in savings annually.
Q:What is KeyCorp's outlook for credit quality and reserve levels?
A:Clark Khayat noted that credit trends are strong, with reserves reflecting loan growth, a shift from residential to C&I loans, and macro uncertainty. Mohit Ramani highlighted areas of focus, including consumer discretionary, health care, and agriculture, but overall credit quality remains strong.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer to questions about the visibility of middle market M&A activity beyond Q1, citing uncertainty in the deal business. Additionally, while they discussed AI investments, they did not provide specific details on expected cost savings or efficiencies.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Annual Meeting
BBT addition
Banking Insurance
BlackRock portfolio
CEO Dollar
CEO director
Carlton contribution
Chief Investment
Chief Officer
Cutler CEO
Cutler director
Deposit dynamic
Director Key
Dollar General
Equities BlackRock
Fundamental
Mr
banker
beginning
capability
commitment
dedication
digit rate
fee business
loan delinquency
priority fee
progress
return capital
role Cutler
stock
strength
target
trajectory
value creation
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KEY Transcript
KeyCorp (KEY) Q4 2025 Earnings Call Transcript
Positive1-20
The earnings call highlights strong financial performance, including record AUM and improved credit quality. Strategic focus on growth areas like middle market and payments, investment banking, and wealth, alongside AI investments, indicates a positive outlook. While there are conservative guidance elements, the overall sentiment is optimistic, with expectations of revenue and earnings growth, and a stable credit environment. The Q&A section supports this with positive analyst sentiment, despite some uncertainties in M&A visibility. This suggests a likely positive stock price movement in the near term.
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Neutral12-9
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Neutral11-6
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Positive10-16
The earnings call summary and Q&A reflect a positive sentiment. KeyCorp's revised guidance for net interest income and improved loan growth are promising. The cautious approach to M&A and focus on organic growth indicate strategic prudence. The company's strong capital position and plans for share buybacks, despite being cautious, suggest confidence in financial health. The focus on fee growth, expense management, and ROTCE improvement further enhances the positive outlook. While some responses lacked detail, the overall strategic direction and financial metrics suggest a likely positive stock price movement in the short term.
KEY Report
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